When considering renting a property, the question of a rental guarantee inevitably arises. In Luxembourg, the rental guarantee is a legal and common practice that aims to protect the interests of both landlords and tenants.

What is a Rental Guarantee?

The rental guarantee, also known as a "security deposit," is a sum of money paid by the tenant to the landlord or real estate agency at the time of signing the lease agreement. This sum aims to protect the landlord against potential unpaid rent or damages caused by the tenant during the rental period. In case of disputes or issues at the end of the lease agreement, the rental guarantee can be used to cover costs such as repairs, cleaning, unpaid rent, and charges.

Functioning of the Rental Guarantee in Luxembourg

In Luxembourg, the legislation rigorously regulates the terms of the rental guarantee. According to Luxembourg law, the amount of the rental guarantee cannot exceed three months' rent excluding charges. The landlord cannot use this money during the rental period, except in cases of written agreement from the tenant or in specific situations provided by law.

At the end of the lease agreement, if the property is returned in good condition and all tenant obligations have been met, the landlord must fully return the rental guarantee to the tenant. However, in the case of damages to the property or unpaid rent, the landlord can retain a portion or the entirety of the guarantee to cover associated costs, provided that this is justified.

Different Forms of Rental Guarantee

In Luxembourg, the rental guarantee can take various forms based on agreements between the landlord and tenant, as well as specific provisions in the lease agreement. Here are some of the different forms of rental guarantee commonly used:

• Cash deposit: This is the most traditional form of rental guarantee. The tenant pays a sum of money to the landlord or real estate agency, which is held in a specific account during the lease period. This sum is returned to the tenant at the end of the lease agreement, after potential deductions for repair or cleaning costs in case of damages or failure to meet tenant obligations.
• Bank guarantee: The tenant can also opt for a bank guarantee instead of directly paying money to the landlord. In this case, the tenant opens a blocked bank account, on which they deposit an amount equivalent to the rental guarantee. This amount remains inaccessible during the rental period and is used if needed at the end of the contract.
• Rental guarantee insurance: Some insurance companies offer specific insurance products for rental guarantees. The tenant pays an insurance premium, and in case of issues at the end of the lease agreement, the insurer covers repair, cleaning, or unpaid rent costs on behalf of the tenant.
• Joint rental guarantee: In some cases, a third party, such as a parent or relative of the tenant, can act as a joint guarantor by providing their own financial guarantee for the lease agreement. This joint guarantee means the third party agrees to pay owed amounts in case of primary tenant default.
• Rental guarantee contract: Parties can also draft a specific rental guarantee contract to outline the terms and conditions of the guarantee. This contract may include special provisions on how the guarantee will be managed and returned at the end of the lease agreement.
• State assistance: The Luxembourg Ministry of Housing can, under specific conditions, act as a guarantor for those unable to provide the rental guarantee amount upfront. However, the tenant must set aside this amount for 3 years and will be required to repay the state in case of deductions from the rental guarantee.

Securing Both Landlords and Tenants

The rental guarantee plays a crucial role in the Luxembourg real estate market by creating a balance between the rights and responsibilities of both tenants and landlords. For landlords, it provides peace of mind by safeguarding their investment against potential financial risks.

For tenants, it can facilitate access to quality housing by allowing them to demonstrate their commitment to adhering to the terms of the lease agreement.

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